New Prepared for Bradfields Academy Audit for the Year Ended 31 … · 2017. 1. 19. · 102) and the Academies Accounts Direction 2015/16, or are materially misstated through errors

Audit Findings Report

Presented to the Board of Governors on 14th

November 2016

Prepared for

Bradfields Academy

Audit for the Year Ended 31 August 2016

Contents & key contacts

1. Introduction 1

2. Independence & responsibilities 2

3. Matters arising from the audit 3-7

4. Audit findings 8-12

5. Audit misstatements 13-15

Appendix A: Issues highlighted for future

periods 16

Audit Partner: James Gransby T: +44 (0)1622 754033 E: [email protected]

Audit Manager: Melanie Aw T: +44 (0)1622 754033 E: [email protected]

Audit Supervisor: Sarah Dunn T: +44 (0)1622 754033 E: [email protected]

MHA MacIntyre Hudson present this report solely for the attention of

Bradfields Academy and for the use of the Trustees and senior management

team. We note that the Academy is required to provide a copy of this report to

the Education Funding Agency (EFA). The report has been prepared solely

for the purpose of recording the audit scope, approach and risk areas and for

communicating audit issues raised with those charged with governance.

Tel:+44

mailto:[email protected]

Tel:+44


Tel:+44


1 Introduction

1

In this report we set out our comments and recommendations on various

matters which came to our attention during the course of the audit of the

financial statements of the Bradfields Academy for the year ended 31

August 2016. It should be noted that a copy of this Audit Findings Report

should be submitted to the Education Funding Agency by 31 December

2016 together with the Trust’s financial statements.

In order to comply with the provisions of International Standards on

Auditing we are required to report to you our audit findings and in

particular:

The nature and the scope of audit work we have undertaken

Views about the qualitative aspects of your accounting practices and

financial reporting

Unadjusted and adjusted misstatements

Matters specifically required by Auditing Standards to be

communicated to those charged with governance (such as fraud and

error)

Expected modifications to our auditor’s report

Material weaknesses in the accounting and internal control systems

and

Any other relevant and material matters relating to the audit.

Our Audit Planning Memorandum, dated 19th August 2016, and sent to

you prior to our audit fieldwork, set out details of our team, the timetable,

the scope of our work, materiality, audit approach, key audit areas, and

our fees.

This report summarises key issues in connection with the audit of the

financial statements and with the regularity assurance engagement, which

we consider should be drawn to the attention of the Trustees. This report

has been prepared for the sole use of the Committee, on behalf of the

Trustees in line with the Trust’s governance structure.

We would be grateful if you will in due course advise us what action you

propose to take on the recommendations in the report and also if you

would like our further assistance on these or any other matters.

The report has been prepared in compliance with the EFA’s requirement

for reporting to both the Trustees and the EFA through a management

letter, which this report represents. No reports may be provided to third

parties, with the exception of the EFA, without our prior consent. Consent

will only be granted on the basis that such reports are not prepared with

the interests of anyone other than the Trust in mind and we accept no duty

of care or responsibility to any other party. The report may not be relied

upon for any other purpose. No responsibilities are accepted by MHA

MacIntyre Hudson towards any party acting or refraining from action as a

result of this report.

Finally, we would like to express our thanks to all the Trust’s officers and

staff who assisted us in carrying out our work - particularly Lesley and

Nabilah.

We are looking forward to attending your meeting on 14th November 2016

to present this report, review the Trustees’ Report and financial

statements, and agree the letters of representation.

MHA MacIntyre Hudson

www.macintyrehudson.co.uk

http://www.macintyrehudson.co.uk/

2 Independence & responsibilities

2

2.1 Independence

Auditing Standards require us to communicate at least once a year

regarding all relationships between MHA MacIntyre Hudson and the Trust

that may reasonably be thought to have a bearing on our independence

and objectivity.

Following matters communicated to you during our planning, we have

continued to review our independence, including consideration of whether:

1. The firm is dependent on the Trust as a client due to the

significance of the audit fee to the firm

2. The firm is owed significant overdue fees

3. There is any actual or threatened litigation between the firm and

the Trust

4. Any benefits have been received by the audit team which are not

modest

5. The firm has any mutual business interest with the Trust

6. Any members of the audit team have any personal or family

connections with the Trust or its officers; or

7. Independence is impaired through the provision of services other

than the statutory audit.

There are no issues in respect of points 1-6 above, point 7 is addressed

below.

An independent qualified manager has reviewed the accounts and

any accounting adjustments

The accounts have been prepared by someone on the accounts

team separate to the audit team.

Termly internal checks are undertaken by a member of staff from a

separate office

All transitional adjustments for FRS102 are confirmed with

yourselves to mitigate any management threat arising

Other than issues noted in our Audit Planning Memorandum there are no

further matters to bring to your attention.

.

2.2 Fees

Our audit and non-audit fees were detailed within our audit planning

memorandum dated 19th August 2016. We can confirm that, at the time of

writing, there have not been any additional fees incurred during the audit

process.

2.3 Limitations

Our audit procedures, which have been designed to enable us to express

an opinion on the financial statements and provide an assurance report on

regularity, have included the examination of the transactions and

balances, the controls thereon of the Trust and compliance with regulatory

requirements including the Academy Accounts Direction 2015 to 2016.

The work we have done was not primarily directed towards identifying

weaknesses in the Trust’s accounting systems other than those that would

affect our audit opinion, nor to the detection of fraud.

We have included in this report only those matters that have come to our

attention as a result of our normal audit and regularity assurance

procedures and, consequently, our comments should not be regarded as a

comprehensive record of all weaknesses that may exist or improvements

that could be made.

2.4 Responsibilities

The Trustees are responsible for preparing the Trustees’ Report and

Financial Statements. MHA MacIntyre Hudson as auditors of Bradfields

Academy are responsible for forming an audit opinion on those Financial

Statements and for the provision of a limited assurance report on

regularity, as detailed in our engagement letter.

3 Matters arising from the audit

3

3.1. Audit Approach

In the conduct of our audit, we have not had to significantly alter or change our audit plan, which we communicated to you in our Audit Planning Memorandum

dated 19th August 2016.

3.2. Matters identified at the planning stage

The key areas of audit focus which we had identified as part of our overall audit strategy set out in our Audit Planning Memorandum and how they have been

resolved, are as follows:

Audit area and key risks as presented Our approach as presented Resolution

1 Financial reporting

There is a risk that the respective Trustees

Report and financial statements are not fully

compliant with the revised Charities SORP (FRS

102) and the Academies Accounts Direction

2015/16, or are materially misstated through

errors in their compilation.

We performed a review of the 2015 balance

sheet, in detail, identifying potential FRS 102

transitional adjustments. We reviewed the

finance team’s assessment of such balances

and corroborate their calculations and confirm if

their omission (where appropriate) materially

misstates the accounts. Our work focused on

judgemental areas; accounting for actuarial

gains or losses on the defined benefit pension

scheme, provisions for holiday pay accruals,

discounting of long term liabilities and for

changes in respect of income recognition

criteria. We also reviewed the

Trustees’/Directors’ Reports for consistency

with the financial statements and to ensure it

complies with applicable regulatory (Academies

Accounts Direction 2015/16) and SORP 2015

requirements. We also reviewed the accuracy

of disclosures concerning Key Management

Personnel.

Audit work performed as planned – no exceptions.


4


2 Misstatement of income - Grant Funding and other income

There is significant grant funding received by the Academy Trust by way of the GAG as well as Pupil Premium and SEN funding. Other income should be recognised as restricted income where appropriate, and in accordance with FRS 102 SORP 2015 and the funding agreement.

We considered three aspects for each material income stream:

Completeness (is it all there?);

Recognition (is the correct amount recognised in the period under consideration?); and

Fund accounting (are there restrictions on use and are these correctly recorded?)

The “recognition” aspect draws upon three main criteria of “probability”, “entitlement” and “measurement”.


3 Future plans and Going Concern

The Trustees will need to consider whether Trust will be a “going concern”, giving consideration to at least 12 months from the approval of the accounts (i.e. 31 December 2017)

The finance team will need to demonstrate that

the Trust is operating within its financial limits

and has sufficient resources to continue to do

so.

We reviewed the Trust’s financial forecasts,

including three year forecasts to ensure the

assumptions were reasonable. We also

confirmed that the disclosures in the financial

statements were appropriate especially in

regard to post balance sheet events.


4 Expenditure – Validity and Allocation

The Trustees are responsible for ensuring that expenditure from restricted funds is correctly allocated.

We reviewed the allocation of income and expenditure of restricted and unrestricted funds; ensuring restricted funds were used for the purposes intended. We also substantively tested expenditure to ensure that the costs were bone fide and have been authorised in accordance with the Trust’s controls.



5


5 Payroll - Accuracy, Validity and Completeness

This is the largest area of expenditure so merits particular attention.

We reviewed the Trust’s reconciliation of payroll

records to the accounts and performed

substantive testing to provide assurance that

payroll deductions and calculations were

accurate and have been recorded within the

accounts. For higher paid employees we

ensured appropriate disclosures were made.


6 Pension Scheme Liability - Valuation The FRS 102 pension liability represents the Academy Trust’s share of the deficit of the Local Government Pension Scheme. The amount recognised is an estimate, and has been recorded from the valuation undertaken by the Scheme’s actuary. There remains a risk that the amount may be materially misstated if the assumptions used by the actuary are not appropriate.

As the scheme is reported under Section 28 of FRS102 there is a transitional adjustment to the 2015 Net income/expenditure line, we ensured that this has been adequately disclosed within the accounts. We benchmarked the key pension assumptions against industry standards.


7 Regularity The EFA have highlighted in the Academy Financial Handbook their Schedule of Requirements (the ‘musts’) that are an essential obligation for all Academies.

Within the audit deliverables we included a summary of the ‘musts’ for your attention. We asked that you review this list and consider whether the Trust has given due regard to these requirements. We considered your answers and evidence as part of our audit work.



6


8 Fixed Assets – Existence and Completeness There is a risk that fixed assets are incomplete or do not exist.

We reviewed assets capitalised to ensure the accounting policies have been applied. We tested the existence of fixed assets, on a sample basis, to gain comfort that the assets recorded in the fixed asset register are valid assets owned and used by the Trust.

Some restrictions on audit work due to new system

for tracking fixed assets- see listed as a control

issue below.


7

3.3. Matters identified during the audit

The following issues were not identified at the planning stage but arose during the course of the audit and have been resolved as follows:

No further material matters arose during the course of the audit which were not identified in our planning.

3.4. Audit Status

The audit work on the financial statements and limited assurance report on regularity is now substantially complete and we anticipate issuing an unqualified

audit opinion and negative limited assurance for both the audit and regularity reports respectively for the year ended 31 August 2016 for the Academy,

following:

Receipt of approved; Trustees’ Report, Governance Statement, Statement on Regularity, Propriety and compliance and Financial Statements signed by

the Board; and

Receipt of signed letters of representation (provided under a separate cover).

Our work to enable us to sign off the audit report comprises of:

a final post balance sheet review; and

review of your going concern review.

3.5. Letter of representation

We will forward a letter of representation for your review and approval, as part of your overall review of the Trustees’ Report and Financial Statements. It is

important that this is the reviewed and approved by “those charged with governance”. We have not included any non-standard representations.

In particular, we draw your attention to the representation, and corresponding declaration in the Trustee’s Report, regarding provision of all information to

auditors.

4 Audit findings – regularity and internal control

8

4.1 Audit misstatements

In accordance with International Standards on Auditing we are required to

report any material adjusted audit misstatements arising from our work.

We are also required to report any unadjusted audit misstatements and

why they are unadjusted, other than those that are “clearly trivial”. These

are both set out in Section 5.

4.2 Risk of fraud and error in the financial statements

We are required under International Standards on Auditing to consider

fraud risk throughout the audit. In particular we must consider

management arrangements for preventing and detecting fraud and error.

Our work has not identified any matters which we wish to draw to your

attention.

4.3 Accounting policies

Academy Accounts Direction 2015-16 requires that entities should review

their accounting policies regularly to ensure that they are appropriate to

their particular circumstances for the purpose of giving a true and fair view.

We have reviewed the Academy’s accounting policies, as stated in the

financial statements, and confirm that they are appropriate to provide

relevant, reliable, comparable and understandable information.

4.4 Accounting estimates

As auditors, we are aware that the selected basis of an accounting

estimate may have a significant impact on the financial statements so in

our work we need to identify all accounting estimates and the basis of the

estimate and, where we consider there to be a high estimation uncertainty,

we must ensure our audit work challenges the basis of the estimate.

We are also required to consider the outcome of accounting estimates in

prior periods as a basis for our risk assessment in the current year.

In the Academy’s accounts the most significant accounting estimates

concern-depreciation of fixed assets, classification of funds, cost

allocation, and the basis, FRS102 pension scheme assumptions and the

valuation of property.

We have reviewed the accounting estimates for the Academy and

conclude that they have been calculated on a basis that is consistent with

our knowledge of the Academy and expectations.

4.5 Regularity report

Our regularity opinion in the financial statements must reflect all significant

and material issues that have been raised in this management letter.

There are no significant issues detailed in this report which are required to

be included in the regularity opinion, hence the regularity report we expect

to provide will not be modified.

Where we have identified areas of irregularity, but have concluded that the

irregularity is not material by virtue of the value or nature of the issue, this

has been included in the summary in section 4.6 below.


9

4.6 Regularity issues

We have set out below the regularity issues that arose during the course of our work. The trustees' responses to the issues raised, together with a timescale for action,

have been included where these have been received prior to the finalisation of this report. All observations have been grade as low, medium or high risk reflecting our

initial assessment of priorities, but it is for the trustees to decide what actions are necessary.

These are based on our initial assessment of priorities, but it is for the trustees to decide what actions are necessary.

Regularity:

Regularity deficiency and

potential consequences

Significance and recommendations Trustees’ Response Timescale and responsibility

for implementation

1 Alcohol purchased- Medium Risk

It was noted that there was a purchase of alcohol at a meal through petty cash for £7.20.

Although this is clearly trivial a third party may not see the purchase of alcohol as best use of restricted funds.

We would recommend that any such

purchases are made out of unrestricted

funds in future to ensure that the

academy is in compliance with EFA

instructions on spending of public

monies.

Agreed

Immediately, finance manager


10

4.7 Significant deficiencies in internal control

We have set out below significant deficiencies in internal control which came to our attention during the course of our audit work. We would highlight that this

does not constitute a comprehensive statement of all deficiencies that may exist in internal controls or of all improvements which may be made and has

addressed only those matters which have come to our attention as a result of the audit procedures performed. An audit is not designed to identify all matters

that may be relevant to you and accordingly the audit does not ordinarily identify all such matters.

We have prioritised our recommendations into the following categories:

Low – matters that we consider fundamental, against which management should take action as soon as possible;

Medium – matters that merit attention and would improve overall control, or are options to promote better or more efficient practice; and

High -matters that we consider significant, that should be addressed within a reasonable/ declined timeframe

These are based on our initial assessment of priorities, but it is for the trustees to decide what actions are necessary.

Internal Control Deficiencies:

Observation & Risk Recommendation Management Response

1 Cashbook difference to bank reconciliation –

Medium risk

It was noted that the cashbook as per PS

Financials is showing a £130,000 difference to

the bank reconciliation on the same system, last

year this was thought to be income recorded

twice in error and so was reversed, but that

journal has been reversed and the income

recognised this year (this was in relation to

Outreach funding).

Going forward it is likely that this difference will

continue to show; we would recommend

investigating in collaboration with your service

providers how to resolve this issue.

Agreed


11

Observation & Risk Recommendation Management Response

2 Understatement of grant income – Medium

Risk

It was noted that income had been granted for

the purchase of outdoor play equipment which

had been posted against the relevant expense.

This should not be netted off in this way and

should instead be recognised separately as

restricted income in the accounts. This has been

adjusted for.

We would recommend posting such income to a

separate income code in future rather than against

the expense code so that it is properly reflected.

Agreed, will be careful of such transactions in

future

3 New fixed asset system – Medium Risk

A new system had been put in place in the year

for monitoring fixed assets. Although this system

was a good way of keeping track of such assets

as required for regularity it was not fully up to

date, for example we identified the following

issues during our audit testing:

- Every item classified as computer

equipment had not been given a cost or

net book value

- Computer equipment was listed as

furniture and equipment

- A number of items were known to exist

but were not listed on the fixed asset

register

- The fixed asset register did not balance,

i.e. cost less depreciation did not equal

net book value

We recommend that the system is kept fully up to

date and values are assigned to each item.

Classification of items should also be checked.

Agreed, system issues now resolved and

thought will be satisfactory going forward, will

ensure is updated as appropriate


12

4.8 Prior year recommendations

We have set out below matters which were included in our Audit Findings report last year where we believe that they are of sufficient importance to raise

again.

Deficiency and potential

consequences raised in 2015

Status in current year Trustees’ Response Timescale and responsibility

for implementation

1 None

Matters from last year now resolved

i. We are pleased to report that the following matters, raised last year, have now been resolved:

An independent valuation for land and buildings

New appointments and resignations of trustees updated at companies house

Expense claim forms have been updated

No gifts to staff seen

Process for tenders seen to have been formalised

New system to track fixed assets

5 Audit misstatements

13

We are required to communicate all unadjusted misstatements, other than those that we believe are clearly trivial, to Trustees. We are also required to report

all adjustments that management has corrected that we believe should be communicated to the Trustees to assist them in fulfilling their governance

responsibilities.

UNADJUSTED MISSTATEMENTS SOFA BALANCE SHEET

Adjusting Journals # DEBIT £’S CREDIT £’S DEBIT £’S CREDIT £’S

Accrued income Voluntary Income

Being accrued income identified from cut off testing

1 271

271

Expenses Accruals

Being additional accrual identified from afterdate review of invoices

88 88

Net Impact (Unadjusted) 183 183

ADJUSTED MISSTATEMENTS SOFA BALANCE SHEET

Adjusting Journals # DEBIT £’S CREDIT £’S DEBIT £’S CREDIT £’S

Bank Other government grants

Being bank reconciliation adjustment from previous year

1 130,000

130,000

PAYE/NI Control Teachers- NI

Being employment allowance re-analysed

5,000

5,000

Sales ledger control Purchase ledger control

Being purchase credits per trade creditors listing moved to debtors

6,992 6,992


14

Audit/ Accountancy fees Gas FE fees Audit/ responsible officer role Premises maintenance Catering food/drink Accruals

Being further accruals identified on audit

12,200 1,771 7,110

500 1,431

11,917

34,929

Employer contribution Actuarial loss/gain- asset Employer contribution Interest cost Current service cost Changes in financial assumptions Administrative expenses Pension deficit b/fwd

Being pension scheme adjustments

50,000 288,000

1,000

218,000

218,000

1,303,000

192,000

1,450,000

Expected return on scheme assets Actuarial loss/gain- asset Expected return on scheme assets Changes in financial assumptions Administrative expenses

Being pension adjustments to prior period due to FRS102

95,000

1,000

23,000

62,000 57,000

IT & Equipment acquisition Donations

Being re-analysis of income incorrectly netted off with expense

29,493 29,493

Revaluation of buildings Revaluation reserve Depreciation cleared on revaluation Depreciation of land Depreciation charge in income and expenditure

Being revaluation of property

180,320

2,917,859

44,688

2,962,547

180,320


15

Depreciation charge Amortisation of intangibles Amortisation charge Fixtures additions Sales of goods and services Premises maintenance Equipment (not IT) IT Equipment- Educational Subscriptions- Admin Furniture/Equipment Computer additions Motor vehicle depreciation charge Computer equipment depreciation charge Fixtures and fittings depreciation charge Adjustments to fixtures Loss on disposal of fixtures Adjustments to computer equipment Intangible additions Motor vehicle disposals Motor vehicle depreciation on disposal

Being adjustments to fixed assets to reflect the new Parago system

145,001

352

1,100

2,274

4,229

7,255 905

38,653 4,229 1,250

9,410

38,653 844

53,412

2,626

352

40,234

121,895

37,128

6,000

Net Impact on surplus (Adjusted) 397,913 397,913

Appendix A: Sector Developments

16

We prepare regular updates on accounting, tax, regulations and legal changes affecting the sector. These include a quarterly Academy Advisor update which can be found here: http://www.macintyrehudson.co.uk/publications/academy-advisor-autumn-2016 Other sector publications and guidance can be found at: http://www.macintyrehudson.co.uk/sectors/not-profit. If you would like to subscribe to receive our publications electronically please register at:

http://www.macintyrehudson.co.uk/form/subscribe

http://www.macintyrehudson.co.uk/publications/academy-advisor-autumn-2016

http://www.macintyrehudson.co.uk/publications/academy-advisor-autumn-2016

http://www.macintyrehudson.co.uk/sectors/not-profit

Documents

New Prepared for Bradfields Academy Audit for the Year Ended 31 … · 2017. 1. 19. · 102) and the Academies Accounts Direction 2015/16, or are materially misstated through errors